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Sunk Cost, Commitment Bias, Loss Aversion, and other Related Phenomena ExplainedA Look At Escalation of Commitment and Other Value and Decision Making Biases

The more time and energy you put into something, the more you value it. This Escalation of Commitment phenomenon (or commitment bias) relates to a number of other decision making biases.

On this page we discuss value based decision making and value biases like commitment bias and the related: sunk cost bias, loss aversion bias, risk aversion bias, and the gambler’s fallacy. Below is a quick overview of each bias.

The concept here is that all these related fallacies or biases all affect our ability to assess risk. The two videos below both discuss phycologist and economist Daniel Kahneman’s views on the matter, our views, the above terms, and their relation are all explored in depth below.

Value bias refers to a bias toward the perceived social or economic value of something, decision making bias is a bias that affects decision making. Important value and decision making biases include:

Commitment bias means that the perceived value of a task increases as we invest time and energy into a task, even if the actual value of the task doesn’t. This is why we call it a bias, it is based on perception and not fact. Every time you take an action, you are investing some resource – time, energy, money, or willpower – towards that action’s completion. Psychologically, as you invest more into an action, that action “swells” in its perceived importance (increasing its perceived value, but not necessarily its actual value).[1][2][3]

Examples of Value and Decision Making Bias in Action

I’ll just keep playing this slot machine, I’m due for a win, and I need to recover my losses. I made a risky choice playing this machine, not seeing it through and losing money is even a bigger risk. I’ve already sunk a bunch of money in, so I may as well stick with it, I’ve already invested the time and energy, I need to recover my losses, and I’m due for a win.

Perception of Value and Rose Colored glasses bias: To make matters worse, perception of value often matters more than actual value. So, if you will finally win at the slot machine, you are more likely to go back and think it was worthwhile. Your commitment bias taints your cognitive frame and interferes with your logic. An eventual positive outcome can have more weight than previous negative outcomes, creating “rose colored glasses” and making us more likely to repeat the process next time despite the statistic data pointing to this all being a bad move. Oh, ironic, cruel bias-filled world.

Clarifying “Value”: Value biases like commitment bias, loss aversion bias, risk aversion bias, sunk cost fallacy bias, and other related biases (often called phenomena or fallacies) are behavioral and cognitive theories typically applied to economics and organizational management, where they often equate to actual economic value and concrete concepts. With that said, they apply just as easily to the other social sciences and other types of value. Value is a loose concept that applies to any type of value (including social value types and self-worth). (Learn more about Bias).

How I Learned to Stop Worrying and Love the Decision Making Bias

With the above said, these concepts aren’t just a warning to avoid bias, it is a call to understand bias so you can make it work for you.

Escalation of Commitment along with other value biases are important theories in economics, decision making, cognitive behavioral theory, and psychology. They can help you learn skills and adopt positive habits with less effort if they are taken into consideration.

However, if not acknowledged, these biases can also lead you to act negatively and irrationally. Sometimes the irrational bird gets the worm, but we want to play with a solid strategy and not rely on intuition (as sometimes our intuition is bias acting as a gut feeling).

Below we discuss biases related to value and the Escalation of Commitment phenomenon in more detail.

Escalation of Commitment | Organizational Change | MeanThat.

FACT: You value something more the more that you do it – whether it’s a skill, a habit, an activity, or even a business strategy.

When we invest time and energy into something, we increase its perceived value and are less likely to stop due to related biases like loss aversion. This is related to other biases including the Gambler’s fallacy bias, the idea that our desired outcome is somehow overdue.

Escalation of Commitment (Commitment Bias) Explained

Escalation of Commitment is when a person or organization justifies, or rationalizes, continuing an action even when the results have been negative in the past. [1]

Some examples of this:

A person who keeps attempting to stay on an extreme diet, even though he or she isn’t losing any weight.

A business that keeps using a marketing strategy, even though profits are decreasing.

When congress insists on keeping or slightly modifying a policy that isn’t working rather than getting rid of it and starting from scratch.

An investor putting more money into a startup that’s failing.

A person justifying reasons to stay in an increasingly abusive relationship for just a little bit longer, rather than ending it entirely.

TIP: We can see instances in which giving in to the escalation of commitment bias is the right choice. Truth is typically subtle. Maybe we re-work the implementation the government program, but keep the concepts? Maybe the marketing strategy is sound, but the price-point is wrong? Maybe the startup doesn’t need to be profitable to be successful?

The Bias of Steve Jobs – STORY: Steve Jobs had what we would call “delusions of grandeur,” a grand idea far beyond what technology or his wallet could handle. He also had, as phrased in the Jobs (buy now on Amazon) movie, “a reality distortion field.” Jobs would lose money on a vision that he knew wouldn’t pay off in the short term. His escalation of commitment bias was one of his strongest traits, along with his delusions of grandeur, and it was part of what allowed him to inspire the team that revolutionized culture through advances in computing. He had an amazing ability to succeed at any cost, although the methods he used have consistently been called into question. It is doubtful he used the best tactics, but the results are unquestionable. So, the simple truth behind this story is, bias isn’t good or bad. It is just a technology, good in the hands of the right user, toxic in the hands of the wrong one, often a little bit of both.

Loss Aversion, Risk Aversion, and Value Bias

Even though it seems irrational when contemplated, our default behavior tends to be to stick with whatever we’re doing. Humans are quick to adapt to change, but will usually resist it. This is, in part, because of the concept of loss aversion – the idea that the pain of losing something is about twice as powerful as the reward of gaining the same thing.[4] This is why we’re much more likely to avoid risks than we are to take them (risk aversion), even if the potential reward is great.

Just like with commitment bias, the more you do something, the more loss aversion and risk aversion kicks in, and the more likely you are to keep doing it. Due to cognitive bias, you try to justify and rationalize behaviors even if they aren’t working because you’ve already invested that initial commitment, and are trying to manage risk and avoid loss (often based on perceived value rather than actual value).

The psychology behind irrational decisions – Sara Garofalo.

The Psychology of Sunk Cost

Another closely related bias in psychological and behavioral theory is sunk cost. Sunk cost is where you see your initial commitment as an investment that cannot be recovered (sunk cost), and thus loss aversion and commitment bias kick in. [5]

For example, consider a company that has recently hired a new accountant who is doing a poor job, but is reluctant to fire their new hire. The company has already incurred financial and time costs. They had to go through the process of searching for candidates, reading through resumes and selecting candidates for interviews. They had to conduct the interviews, train the accountant to use the tools they use, ensure that the accountant knew what his or her job was and what was expected, and pay the accountant. All of these are costs that can’t be recovered if the accountant is fired.

Perhaps the most extreme example of sunk cost is the gambler. After losing $300 at the casino playing blackjack, he or she thinks that it makes more sense to keep playing and try to get that money back than quitting when behind even though, logically, the probability of that happening is smaller than the probability of losing more money.

In both cases, the sunk cost fallacy is influencing someone’s decisions. [6] Both the company and the gambler are afraid of losing the investment they’ve already put in, so they pass up an opportunity for getting better results.

How Sunk Cost and Commitment Bias Can Actually Help You

By now, you might be thinking, “Enough theory – how can this help me?”

All the examples so far have been negative, but sunk cost can actually work for you. For example, let’s say you have a goal of learning French. If you’ve spent a week trying to learn this new language, learning French will be more important to you than if you haven’t started yet.

You can actually leverage this momentum to build new habits – when you start to lose motivation to do something, think about what you’ve already invested in to it.

You can also use this to build up related habits or behaviors with the same goal. For example, if you want to get in shape, trying to change your exercise, nutrition, and sleep habits all at the same time is probably not the way to go. Instead, focus on one of those three aspects first. If you start working out regularly, your mind will rationalize the importance of your health, and it will be less difficult to improve your diet in the future.

The Value of Investment of Commitment

Some people believe you can extend this concept even further, just like we value something more as invest more into them, we actually tend to enjoy activities more the more that we do them.

In Josh Kaufman’s book, “The First 20 Hours: How to Learn Anything Fast”, he argues that the reason for this is simply that we enjoy things that we’re good at. [7] The person who can shred “Free Bird” on Expert in Guitar Hero will usually have a lot more fun playing the game than the beginner who can barely play “Baracuda” on easy mode.

This idea, related to Dreyfus’ theory of Skill Acquisition, suggests that learning new skills doesn’t have to be difficult or time consuming – all you have to do is get over the initial hump (AKA the learning curve) so that you’re competent at the skill. [8]

In other words, if you want something to be important to you, all you have to do is invest time and energy into doing it and your brain will take care of the rest. If you want to enjoy doing something, you have to become good at it, not amazing, and not even great – just good.

TIP: If you spend enough time doing something you start to gain mastery (sometimes expressed as 10,000 hours). This goes hand-in-hand with the 20-hour jump-start. If you pair the two, mastery is at your fingertips. This is the line of thinking that tells us bias isn’t good or bad, it is just a strategy we can use.